How Does A Chattel Mortgage Work?

You can finance many assets with a chattel mortgage, though motor vehicles are the most common.

A chattel mortgage is similar to a traditional home loan in that the lender provides funds for you to buy the asset, but retains a mortgage over it until the loan is repaid.

If you can’t make the repayments the lender may repossess the asset.

Unlike a Hire Purchase or Finance Lease, you take ownership of the asset immediately.

Repayments are made during an agreed term – usually between 2 and 5 years – at a fixed rate.

Some lenders will allow you to vary the amount you pay each month to fit your seasonal cash flow needs.

Balloon

You can also reduce your monthly repayments during the period of the loan by opting to pay a higher deposit and/or a large balloon payment at the end of the loan period.

This can be a good option if you want to better manage your cash flow, but can increase the amount of interest you pay over all.

It is possible to refinance the balloon when the time comes to pay it.

Tax

The Goods and Services Tax is included in the purchase price of an asset bought with a chattel mortgage and it is possible to claim an input tax credit up front – good news if the asset is expensive.

You may also be able to claim interest and depreciation depending on how much you use the asset for business.

Fine Print

Chattel Mortgages are generally easy to set up and don’t effect other finance agreements you have in place, but they can be inflexible and more expensive than other forms of equipment finance.

Unlike Hire Purchase Agreements and Finance Leases you are responsible for maintaining the asset and any costs associated with running it.

Your lender may also require you pay a deposit.